As we settle into 2025, companies granting equity compensation awards to their employees around the world are encouraged to monitor developments that affect compliance and administration across different jurisdictions.
Below, we provide a select overview of latest changes and updates in various countries that could impact global equity plans.
China: Extension of preferential tax treatment and new SAFE reporting requirements
The preferential tax treatment for equity awards granted by publicly listed companies to employees in China under Notice 35 has been extended until December 31, 2027. This extension allows equity income to be taxed separately from other compensation and taxes to be calculated pursuant to a specific formula. Companies should also be prepared to comply with the new monthly exchange control reporting requirements imposed by some local SAFE offices, which require reporting of equity transaction data, assets, and liabilities via the AS-One system online before the 15th of each month.
Germany: Changes to the one-fifth rule for equity awards
Effective January 1, 2025, tax treatment of certain equity awards are subject to change. German employers are no longer required to apply the “one-fifth rule” for the taxation of equity award income. Employees may still claim the benefit in their individual tax returns, although the employer should report what equity award income is eligible for the benefit in the employees’ annual wage certificate. Employers should update their withholding processes and employee communications accordingly to reflect this change and are encouraged to inform employees of how to claim the benefit on their own.
India: Offset of tax collected at source (TCS) against salary withholding
From October 1, 2024, Indian employers may be able to offset tax collected at source (TCS) paid on outbound remittances against tax withholding on salary (TDS). The government is expected to issue detailed rules and procedures to facilitate this offset, allowing employers to reduce the TDS by the amount of TCS already paid. This development is expected to enhance the financial management of equity plans and provide relief to employees. Employees may still be able to obtain a refund for any TCS paid in connection with participation in an employee share plan in their tax return for the 2024/2025 fiscal year.
Israel: Enhanced reporting requirements for equity plans
Starting January 1, 2025, the Israeli Tax Authority (ITA) will enforce new rules for filing and reporting equity plans under Section 102 of the Income Tax Ordinance. Companies must now complete a comprehensive questionnaire as part of the filing process, which includes detailed representations about the equity plan. Additionally, the ITA will require annual and quarterly reports for both trustee and non-trustee plans, detailing grant activities, employee statuses, and tax calculations. To facilitate compliance, the ITA will introduce electronic filing systems for these reports, aiming to streamline the process and ensure accurate data submission.
Moldova: New legal provisions for stock options grants
For equity incentive plans adopted on or after January 1, 2025, the Moldovan Fiscal Code includes a new preferential tax regime for equity awards granted under a “long-term incentive program” that provide the right to receive free shares of a company’s stock or a right to acquire shares at a preferential price. The new regime should allow employees to defer taxation to the date the shares underlying the awards are sold provided three conditions are met: (1) the employee share plan is approved at a general meeting of shareholders, (2) the shares subject to the awards must not exceed 25 percent of the parent’s social capital, and (3) the awards must be subject to a minimum three-year vesting schedule. If the conditions are met, then the gain at sale should benefit from capital gains tax treatment whereby employees will only be subject to tax on 50 percent of the gain at sale.
Vietnam: New exchange control requirements under Circular No. 23
Effective August 12, 2024, Circular No. 23 has removed the requirement to register a foreign company’s employee share plan with the State Bank of Vietnam (SBV) previously required under Circular 10. Instead, companies must now submit necessary documentation with a commercial bank for review before the bank will provide the foreign exchange services needed to operate a company’s plan. This change also introduces a monthly reporting requirement with the SBV, replacing the previous quarterly reporting obligation, and prohibits the outflow of currency related to offshore awards (eg, offering an ESPP will generally still not be permitted). All transactions related to a company’s plan must still be processed through a dedicated account with a local commercial bank.